3.Topic:Hedging export transaction

A U.S. company sells merchandise to a German customer on May 1 for 100,000.The customer pays the bill on August 1.To hedge foreign exchange risk, on May 1 the U.S. company enters a forward sale contract for 100,000 with an August 1 delivery date.On August 1, the company collects the 100,000 from the customer and closes the forward contract.The company's fiscal year ends June 30.Relevant rates ($/) are as follows:

Spot Rate

Forward Rate for

August 1 Delivery

May 1

$1.235

$1.237

June 30

1.241

1.244

August 1

1.256

1.256

Required

Make the journal entries to record the above events, including appropriate fiscal year-end adjusting entries.

ANS:

May 1

June 30

August 1